New Hampshire Auto. Dealers Ass'n, Inc. v. General Motors Corp., 85-2022

• Decision Date: 17 September 1986
• Docket Number: No. 85-2022,85-2022
• Parties: NEW HAMPSHIRE AUTOMOBILE DEALERS ASSOCIATION, INC., et al., Plaintiffs, Appellants, v. GENERAL MOTORS CORPORATION, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 528

801 F.2d 528

55 USLW 2235

NEW HAMPSHIRE AUTOMOBILE DEALERS ASSOCIATION, INC., et al Plaintiffs, Appellants, v. GENERAL MOTORS CORPORATION, Defendant, Appellee.

No. 85-2022.

United States Court of Appeals, First Circuit.

Argued June 4, 1986.

Decided Sept. 17, 1986.

Kenneth A. Cohen with whom Robert D. Paul, Loretta M. Smith, Goodwin, Procter & Hoar, James R. Muirhead and McLane, Graf, Raulerson & Middleton, P.A. were on brief for plaintiffs, appellants.

John H. Henn with whom Peter B. Ellis, Bruce R. Parker, Foley, Hoag & Eliot, Howard Myers, Myers & Laufer, and Joyce S. Kornbluh, General Motors Legal Staff, were on brief for defendant, appellee.

Before BOWNES, Circuit Judge, BROWN, ^* Senior Circuit Judge, and BREYER, Circuit Judge.

BREYER, Circuit Judge.

Several New Hampshire General Motors auto dealers and their trade association (the Dealers) have sued GM, claiming that it violated a New Hampshire law that protects dealers from a manufacturer's unfair or discriminatory conduct. N.H.R.S.A. c. 357-C. The district court, 620 F.Supp. 1150, granted summary judgment for General Motors, and the Dealers appeal. We conclude that summary judgment was correct with respect to each of the Dealers' claims but one, where further proceedings are necessary.

I.

This case arose out of GM's "fleet" car program--a program that accounts for about one-fourth of all GM sales. A fleet buyer is a firm or organization, like a rental car agency or a firm with a large sales force, that buys ten or more new GM cars in a year. GM offers fleet buyers special discounts that may take the form of special interest rates, cheaper accessories, or a lower price for the cars themselves. In the case of especially large fleet buyers, GM may negotiate with the buyer directly. Once it determines the special terms, GM tells its dealers (at least those that it knows are interested) about the terms and the buyer. GM tells the dealers that it will provide them with the fleet cars at a special dealer price, low enough for them to resell to the fleet buyer at the fleet rate while still earning a small profit. The fleet buyer then shops among interested dealers. Since the buyer is typically large enough to shop among several dealers, competition among the dealers usually guarantees that the fleet buyer will receive the cars at the fleet rate. In principle, dealer competition could lead to an even lower price, should some dealer prove willing to accept a smaller profit. GM sometimes ships the car directly from factory to buyer; but, as a legal matter, title to the car passes from GM to the dealer and then to the buyer.

Fleet buyers are not supposed to resell their discounted cars to the general public, at least not while they are new. Each of them makes a promise to that effect, signing a statement that reads something like the following A Qualified Fleet User is defined as any company ... which has purchased and registered or leased ten (10) or more new cars and/or trucks solely for use in its operation.... The dealer's customer, ... by executing this enrollment form, certifies it is a Qualified Fleet User, acknowledges the fleet program eligibility requirements specified herein and agrees to comply with them.

(A. 748, 596; emphasis added.) In addition GM has created certain enforcement rules. It has insisted that typical fleet buyers hold any new car for at least three months before selling it. And, it has told each dealer that it will "charge back" the price discount it granted should it discover that a fleet buyer, buying from that dealer, did not buy the (cheaper) car for its own use, but sold the car to the public while it was new.

Occasionally (but apparently not very often), a fleet buyer has violated the GM program's 'for my own use' condition. The resale activity of one such violator, Merchants Rent-A-Car (a New Hampshire licensee of National Car Rental), led to this litigation. Merchants sold at least 30 new fleet cars to the public. Regular New Hampshire GM dealers, angered at Merchants' competition and at what they saw as lax GM enforcement of its rules, then brought this law suit.

Initially, in the district court, the Dealers made a series of broad legal claims, including the claim that GM's fleet program itself amounts to the type of discriminatory discount-price sale that the New Hampshire statute forbids. The Dealers lost on all their claims in the district court. They now appeal, but in doing so they explicitly restrict their appeal to only three of the claims they raised below. They say that GM's failure to enforce the 'for my own use' rule against Merchants violated (1) the New Hampshire statute's prohibition of manufacturers' selling cars at discriminatory prices; (2) the statute's prohibition of manufacturers' taking actions that are "arbitrary," "unconscionable," or "in bad faith"; and (3) the statute's requirement that GM follow certain explicit procedures when creating a new franchised dealer. We shall consider each of these claims in turn.

II.

The Dealers argue that GM's 'sales' to Merchants violated the 'price discrimination' provision of the statute. N.H.R.S.A. c. 357-C:3(III)(e). That provision says that a manufacturer shall not

[o]ffer to sell or ... sell any new motor vehicle at a lower actual price than the actual price offered to any other motor vehicle dealer for the same model vehicle similarly equipped or utilize any device including, but not limited to, sales promotion plans or programs which result in a lesser actual price. However, the provisions of this subparagraph shall not apply to sales to a motor vehicle dealer for resale to any unit of government; nor to sales to a motor vehicle dealer of any motor vehicle ultimately sold, donated or used by such dealer in a driver education program. The provisions of this subparagraph shall not apply so long as a manufacturer, distributor, or any agent thereof, offers to sell or sells new motor vehicles to all motor vehicle dealers at an equal price.

(Emphasis added.) The Dealers say that GM offered to sell or sold (fleet) cars to Merchants "at a lower actual price" than the price at which it sold (non-fleet) cars to other dealers. Perhaps because a court might not consider Merchants to be a "motor vehicle dealer" (thereby making subparagraph (e) inapplicable), the Dealers also say that this conduct violates subparagraph (f), which says that a manufacturer may not

[o]ffer, sell, or lease any new motor vehicle to any person ... at a lower actual price than the actual price offered and charged a motor vehicle dealer for the same model vehicle similarly equipped or utilize any device which results in such lesser actual price.

N.H.R.S.A. c. 357-C:3(III)(f) (emphasis added). Even if Merchants isn't a "dealer" within the terms of (e), it is a "person" within the terms of (f); and, the Dealers say, GM has offered to sell (and has sold) Merchants fleet cars at "lower actual price[s]" than the prices that regular GM dealers must pay for non-fleet cars.

The district court rejected a similar argument when the Dealers advanced it as a ground for holding unlawful GM's entire national fleet program. In doing so, the district court advanced several reasons, including three that are relevant to this more limited appeal. First, it held that GM did not "sell," nor did it "offer to sell," cars to Merchants. Rather, it 'sold' its cars to dealers, who resold them to fleet buyers such as Merchants. The court recognized that the New Hampshire statute defines the word "sale" broadly to include "solicitation in contemplation of a sale." N.H.R.S.A. c. 357-C:1(XII). But the district court held that the word "solicitation" refers to a solicitation made by one who himself intends to make the sale. GM did not intend to sell to Merchants itself; rather, it sold fleet cars to dealers and the dealers sold the cars to the fleet buyers.

Second, the district court recognized that any broad definition of the word "sale" would likely make the practice of fleet sales unlawful, because GM's fleet purchasers in fact pay less than GM dealers for the "same" non-fleet "model vehicle[s] similarly equipped." Yet, it believed that a broad definition was not required in light of the fact that the New Hampshire statute does not seem primarily aimed at stopping fleet sales. The legislature enacted it against a background of known fleet sales. Its awareness of the existence of fleet sales is indicated by the statute's specific reference to fleet sales to government units and driver education programs. Had the legislature intended to try to outlaw this widespread and important practice, it would seem likely to have prohibited it explicitly, rather than by hoping for an especially broad interpretation of the word "sale."

Third, the court feared that a broader interpretation of the New Hampshire statute would raise serious questions under the Commerce Clause of the federal Constitution. Unlike the Dealers, we do not find these fears fanciful. For one thing, to interpret the New Hampshire statute as forbidding GM's fleet sale program within New Hampshire significantly risks affecting fleet sales outside New Hampshire. Auto makers may find it difficult to guarantee that fleet cars bought by national rental agencies, such as Avis, Hertz or National, do not find their way to New Hampshire licensees of those agencies. Auto makers may also find it difficult to control resales by their dealers in nearby states: Merchants, for example, bought many of its cars from dealers in other New England states. As a general matter of economics, other things being equal, the lower the price for which GM sells its cars outside New Hampshire, the harder it will be to stop out-of-state purchasers from reselling those cars inside New Hampshire. For this reason, a New Hampshire law forbidding (and assessing damages for) low-priced fleet sales within New Hampshire could, if interpreted to reach rental car purchases from...